Aug 16

FOMC Minutes (Wed):

Minutes from the July 31st FOMC meeting, due to be released on Wednesday, could be overshadowed by the Jackson Hole Economic Symposium, due to begin on Thursday. At the July meeting, the FOMC left rates unchanged at between 5.25-5.50%, but it made tweaks to its statement that appear to leave the door open to a rate cut in September. The Committee is now attentive to risks on both sides of its mandate, a change from the June statement, where it said it was 'highly attentive' to inflation risks. The statement said there has been 'some further progress' towards its inflation goal, whereas in June it said there had been 'modest' progress. And it now says that risks to achieving its employment and inflation goals continue to move into better balance, whereas in June, it said it was moving 'towards' better balance. The Fed did however reiterate that it does not expect that it will be appropriate to lower rates until it has gained greater confidence that inflation is moving sustainably towards target, suggesting that the Committee still wants to see favorable data before pivoting to rate cuts. At his post-meeting press conference, Chair Powell revealed that there was a real discussion about the case for reducing rates at this meeting; a strong majority supported not moving (he later said that "overwhelmingly" policymakers felt it was not the time yet). The Fed Chair noted that the policy rate is clearly restrictive, and it is coming to the point where it will be appropriate to start rate cuts and dial back restrictions in order to support the continued progress of the economy. He added that the Fed does not need to be 100% focused on inflation given upside risks to prices have decreased while downside risks to employment mandate are real now, noting that the chances of a hard landing are low as the economy was neither overheating nor sharply weakening. Powell said the Fed is balancing the risk of going too soon against going too late and has a very difficult judgement call on rates. When asked about the prospects of a 50bps rate cut (two 25bps moves rolled into one), Powell said it was not something the Fed was thinking about right now. A theme throughout Powell's Q&A was that he tied any future move on the incoming data. Powell said that the Q2 inflation had added to the Fed's confidence on inflation; on the labor market, Powell said does not think the labor market is currently a source of inflation pressures, and that is why Fed does not want to see excess cooling in the labor market. Powell was coy on giving any specific nod to rate cuts, noting that it could reduce rates zero times this year, or even several - it all depended on incoming data. The Fed's focus is now shifting more towards its dual mandate, rather than just the inflation side of the equation; while policy was positioned to deal with dual mandate risks, the Fed is attentive to risks on both sides of the mandate.